Congress president Rahul Gandhi on Monday announced on Twitter something that sounded like the Universal Basic Income (UBI) but it isn’t. “Today is a historic day. It is on this day that the Congress party launched its final assault on poverty. 5 Crore of the poorest families in India will receive Rs 72,000 Per Year. #NyayForIndia is our dream & our pledge. The time for change has come,” he tweeted.
Today is a historic day..
It is on this day that the Congress party launched its final assault on poverty.
5 Crore of the poorest families in India, will receive Rs. 72,000 Per Year#NyayForIndia is our dream & our pledge.
The time for change has come.
— Rahul Gandhi (@RahulGandhi) March 25, 2019
This is arguably the first time Gandhi is offering something different to voters, something other than a pathological criticism of Prime Minister Narendra Modi and the ruling BJP. The question is whether a Congress government can pull it off.
It is tempting to dismiss any welfare scheme as an outdated, impractical albeit populist socialist idea. Interestingly, however, pro-market economists do not resent the welfare scheme of guaranteeing a minimum or basic income to all citizens. Even Milton Friedman does not.
Most reputed economists argue that the constantly changing nature of jobs, especially due to automation, renders a worker useless after he spends a decade or more acquiring the skill while the technology he has learnt turns outdated. This situation, the economists say, demands a guaranteed income to all. However, when the American society was surveyed time and again after implementing the Universal Basic Income (UBI) scheme in pockets, most respondents issued caveats.
The state wanted to know from the IGM Economic Experts panel at Chicago Booth in 2016 whether “granting every American citizen over 21-years old a UBI of $13,000 a year” was a good policy. The experts said the UBI could be financed only by eliminating all other benefit transfer programmes (social security, Medicare, Medicaid, housing subsidies, household welfare payments, and farm and corporate subsidies, etc).
Indians may compare this with Prime Minister Narendra Modi’s DBT to farmers or PM-SYM. If a farmer or worker respectively avails of this, he cannot continue to enjoy the other benefits the state already offers him.
However, hypothetically with a party like the Congress in power in India, while the revenue collected by the state would be squandered away in doles, no previous benefit can be expected to be stopped.
Against UBI: The layman argument
Let’s begin with the point that is hardly technical for anyone to not understand. The easiest yet sensible point is that a salary ‘for free’ would make workers lazy. In the West too, people have given an Indian-like argument that the money will be wasted on booze.
While surveys do not support this theory, they say the money is hardly wasted only if the UBI reaches the intended recipient through DBT. But when has DBT been a favourite with the Congress of India?
The lay alone doesn’t make this point. You may find it in the article “Just Distribution: Rawlsian Liberalism and the Politics of Basic Income” by Simon Birnbaum of the Stockholm University, Faculty of Social Sciences, Department of Political Science. You can trace the argument in “Improving Social Security in Canada: Guaranteed Annual Income: A Supplementary Paper” by the Government of Canada. And you will locate it in an interview with Philippe Van Parijs at the University of Bristol.
UBI not at the cost of other benefits, say Americans
In the US, 58% disagreed or strongly disagreed with the UBI in the survey above; 19% were uncertain, and a mere 2% agreed it was good for them.
And the Americans were not protesting like economists. Those who disagreed clearly said they were not ready to pay the cost for the UBI (surrendering other benefits).
Those who were experts complained about the lack of optimisation in the structure proposed. Professor of economics at MIT Daron Acemoglu said, “The current US status quo is horrible. A more efficient and generous social safety net is needed. But UBI is expensive and not generous enough.” In other words, the expert means that the scheme would drain the exchequer on the one hand but not make the beneficiaries happy on the other.
This is no speculation or theory. People of Switzerland said in a survey that the money they got from UBI was barely enough for a decent living.
Economist and Nobel Laureate Eric Maskin said, “A minimum income makes sense, but not at the cost of eliminating social security and Medicare.”
London School of Economics professor Simeon Djankov said the costs of a generous system were prohibitive.
If I have this right – 72,000 rupees a year for 5 cr. households? This is Rs. 350,000 cr. – a little more than half our personal income taxes. Imagine half your taxes, given to someone for free, no work required.
— Deepak Shenoy (@deepakshenoy) March 25, 2019
UBI fails to impress even the left
Douglas Rushkoff, a professor of media theory and digital economics at the City University of New York, said universal basic income was another way that obviated “the need for people to consider true alternatives to living lives as passive consumers.”
Like him, other leftist economists believe the provision would make corporations pay their workers just the bare minimum — at the expense of public money — while many workers deserve better salaries. Communists say UBI makes these rich companies richer.
Nobel Laureate James Meade insists that a “citizen’s income” is necessary for 100% employment but he adds that the cost to pay for UBI should not be a stagnant or negative growth in wages.
On the Basic Income Earth Network or BIEN, the article “Basic Income, sustainable consumption and the ‘DeGrowth’ movement” reports: “Many were speculating about how well basic income would ‘play’ among the general public or in Congress. Some just wanted to know if the issue would hurt or help the Democrats in the upcoming election. These are the hardest people to convince.”
The report continues: “The fact that income makes people more dangerous as consumers is a strong argument for carbon taxes and other environmental regulations.”
Here’s simple math: Less work less tax less money for the state to fund public projects. The more generous the basic income is, the higher is the disincentive to work.
In an experiment in the US in the 1970s, people worked for 5% fewer hours when offered UBI. This was particularly glaring in families with more than one earning member. A sole earning member of a family tended to be more responsible.
In the 1970s again, the Mincome experiment in rural Dauphin, Manitoba, saw a similar result. But here, new mothers and teenagers who were supporting families with additional incomes worked less.
It’s not all that bad though when you consider the fact that the loss above is seen in full-time jobs while the UBI led to more part-time jobs and entrepreneurship. This is at least what a study of the 43-year old Alaska Permanent Fund Dividend — the largest-scale UBI programme in the US — showed. But entrepreneurship is another model Indian National Congress’s Rahul Gandhi does not like, so suggests his act of taking a dig at Modi’s appreciation of budding businessmen — from pakoda-walas to MUDRA loan beneficiaries.
By the way, the Modi government was once mulling over an Indian UBI but, with the mechanism of delivery not finalised, it did not go ahead with the plan. To that extent, the Congress can be said to have pre-empted the BJP in wooing voters in yet another way.
There is another advantage with UBI, which the ultra-socialist Congress of India is likely to fritter away if its government implements the scheme. The programme saw no decline in working hours in the manufacturing sector, especially in companies that exported goods. Further, it was observed that, equipped with UBI, people were managing their monthly liabilities better, working in more than one office/company. While this practice is commonplace in a place like Delhi, most salaried class people across India are satisfied doing just one, fixed and ‘permanent’ job. It is doubtful a Congress government will dare to disturb this large section of the electorate once its minimum income guarantee kicks in.
Therefore, when a hypothetical Rahul Gandhi government gives to the poor of the country Rs 3,60,000 crore collected from taxpayers every year, it can only be drainage as the Congress regime would not dare tell — let alone enforce a law of work upon — any citizen how to make the best use of UBI. Besides, it is not UBI because the scheme wouldn’t apply universally to the citizens.
Finally, the state treasury will run dry and yet the poor will be as upset as they were in 2014 despite a plethora of welfare schemes by the Sonia Gandhi-Manmohan Singh government. Even a me-too Congress like Arvind Kejriwal is no longer as popular in Delhi. At that point, even the leftists have to accept what they curse PV Narasimha Rao for approach the World Bank and IMF, which will lay the precondition of pro-market reforms before that, God forbid, Indian government.